Exclusive Interview with the Author of Currency Wars
This week, our old pal, Greg Canavan, met up with investing icon Jim Rickards, author of the Currency Wars. Greg hosted a last-minute function in front of 100 Money Morning and Daily Reckoning readers in Sydney.
(We recorded the event and we’ll make it available to our paid subscribers only over the next few days. To find out which investment service best suits you, and — when released — gain access to Jim Rickards’ presentation and interview, click here for details…)
Greg summed up Jim Rickards’ view in a nutshell:
‘The thrust of Rickards’ presentation is that we are in the middle of the third global currency war. Countries engage in currency wars in order to “steal” growth from their trading partners. They do this by weakening their currencies to increase export competitiveness. But it is a zero sum game. The benefits are fleeting.’
Artificial currency manipulation only benefits some. For instance, weakening the currency benefits firms that export goods. But it punishes everyone else.
It especially punishes consumers who need to buy products or services from overseas. Goods are services that may not be available in the local market. It means the consumer pays a higher cost for the same quantity and quality of goods or service.
And because the consumer has paid more for imports, it means they have less to spend on locally produced goods.
In other words, an artificial currency rate favours some at the expense of others, while not necessarily producing any net economic benefit.
It’s another form of extortion…forcing a group of individuals to pay more for something with no increased benefit.
Right now, the Australian dollar is high. So that’s OK right?
In a free market, the exchange rate would reflect the demands for imports and exports. It would reach an equilibrium value.
But the high Australian dollar isn’t at an equilibrium point. It is at an artificially high level. A level that makes Aussie firms uncompetitive both internationally and locally.
Because of this, it forces consumers to source goods from overseas because local producers are unable to compete. It’s a partial win for the consumer, because you get the goods cheaper…but only if you can source the goods from overseas.
If not, you have to miss out, or perhaps buy a more expensive local product.
The point is, any form of manipulation creates problems for businesses, consumers, investors, and savers. It makes it hard to predict what will happen next, and what you should do with your money.
Currency Manipulation is a Wealth War Against You
As Greg wrote in his weekly update to Sound Money.Sound Investments subscribers last night:
‘I think this just goes to show how dysfunctional and volatile the financial system has become. The upheaval in Europe has disrupted the flow of global capital. US bonds are a safe haven. The Dow Jones Industrial Index is a safe haven. Aussie bonds and the Aussie dollar are a safe haven. Global capital has shoved fundamentals aside as it looks desperately for a safe place to hide.’
Bottom line, a major shift has occurred in capital markets. And it’s sped up over the past four years. It’s the shift of wealth from the private sector into the government sector.
It used to happen quietly — taxes, levies, tariffs, etc.
Jim Rickards says there is a currency war as countries race to devalue their currency in the belief it will help the country export.
The reality is that it’s more serious than that. It’s not just a currency war; it’s a war between the haves (private citizens) and the wants (government).
It’s a total Wealth War. And it’s up to you to fight to protect your wealth in any way you can.
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Written by Kris Sayce
Kris Sayce is Editor in Chief of Australia’s biggest circulation daily financial email — Money Morning. (You can subscribe to Money Morning for free here).
Kris is also editor of Australian Small-Cap Investigator, his small-cap stock research service, where he provides detailed analysis on some the brightest, smallest listed companies on the ASX.
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